Governing Sumida Corporation

by
Julia Hanna

In a new Harvard Business School case, Professor Lynn Paine and her colleagues explore the nature of corporate governance systems by studying Japanese electronics components maker Sumida Corp. CEO Shigeyuki Yawata looks to create a governance structure that would be transparent to investors and stakeholders worldwide.

Issues surrounding corporate governance are a source of ongoing debate in the boardrooms of companies around the world—not just the United States. A new Harvard Business School case, "Governing Sumida Corporation," takes readers inside a Japanese manufacturer of electronic components. It examines how CEO Shigeyuki ("Shiggi") Yawata moves Sumida toward a U.S.-inspired "committee system" for its board of directors, the first Japanese company to do so. The case was a collaborative project undertaken by Professor Lynn Paine and Japan Research Office Executive Director Masako Egawa (HBS MBA '86), working with research associates Chisato Toyama (HBS MBA '99) and Kim Eric Bettcher.

This case challenges students to think about different systems of corporate governance and whether they are converging toward just a few basic models.

As head of the first-year required course Leadership and Corporate Accountability, Paine notes that she often looks for opportunities to bring a global perspective to the classroom. "Masako found this particular situation," she says of Sumida. "The case was very appealing because the CEO's goal was to create a governance structure that would be transparent to investors and stakeholders anywhere in the world. The more we talked, the more it seemed like a way to understand the economic, legal, and cultural changes that were taking place in Japan."

A family-controlled but publicly traded company, Sumida was founded in 1956 by Ichiro Yawata, Shiggi's father. The company reported revenues of 14 billion yen ($112 million) and had 5,200 employees when Shiggi Yawata was appointed CEO in 1992. A dynamic, outspoken leader, Yawata quickly set an ambitious global agenda for growth and greater transparency. His goal of listing the company on the Tokyo Stock Exchange was realized in 1998. Changes to the company's retirement policy encouraged a more performance-oriented culture, and in 2000, Yawata made English the company's official language, paying for employee language lessons during a two-year transition period. In 2005, Sumida reported revenues of 39 billion yen ($345 million) with 17,750 employees.

Egawa, who holds a PhD in management with a focus on corporate governance, summarizes the macro changes that led to revisions in Japan's commercial code allowing companies to choose between a more traditional governance system and the U.S.-inspired committee system. Believing that Sumida's future was limited if it followed the status quo, Yawata presses ahead with his decision to adopt the U.S. model. The case details the behind-the-scenes dynamics of implementing the new system and closes with these questions: Just how well is it working? What additional changes are needed, if any?

"This case challenges students to think about different systems of corporate governance and whether they are converging toward just a few basic models," Paine notes. "At first, the system adopted by Sumida looks comparable to a U.S. model. But when you examine how it's implemented and the behavioral issues involved, the similarities aren't so clear."

Ultimately, Paine says that she hopes the case will encourage others to delve into the deeper questions that should be asked of any system of corporate governance: "What's the central objective? Who are the key players? How is authority allocated? How is accountability ensured? Whatever country a company operates in, it's important to go to that deeper level to examine how the board, management, and investors interact."

Paine expects the case will undergo further revision before it's taught in the HBS classroom; for now, its value lies in its contribution to research on governance and cross-cultural management, as well as Paine's realization of the benefits of collaborating with one of the School's global research centers.

"I couldn't have worked on this case without actually being on the ground in Japan and working closely with the company," she remarks. "Masako and Chisato were great facilitators, in addition to contributing to the case itself. This project would have been much more difficult without them."